National Penn Bancshares, Boyertown, Pa., attempting its first acquisition in six years, announced plans Wednesday to buy Elverson National Bank for $102 million of stock.
The price is a hefty 3.77 times Elverson's book value and 30.1 times its earnings.
Wayne R. Weidner, National Penn's president, defended the premium. "We have looked at operational costs and believe we can earn that price back during the second year," he said.
Besides, a lower price might have sparked a bidding war for $300 million-asset Elverson, said Cassandra Toroian, research analyst at Ryan, Beck & Co., Livingston, N.J. "My sense from talking to others is that they have been holding out for a nice premium," she said. "I think a couple of banks would have been interested in them."
The agreement's terms call for National Penn to exchange 1.175 share of its common stock for each share of Elverson National. At midafternoon Wednesday, National Penn shares were trading at $32, down $1.25, while Elverson National was up 75 cents, to $26.50.
The deal is slated to close late this year or early next.
National Penn, with $1.6 billion of assets, operates 52 branches in eastern Pennsylvania. Mr. Weidner said one office would be folded into a nearby Elverson branch once the deal closes.
Elverson National has nine branches in three counties. The deal calls for the target's seven branches in Chester County to keep the Elverson National Bank name and to operate as a division with its existing board of directors.
The other two branches would take the National Penn name.
"We have been looking at building branches in Chester County for years and have delayed, hoping an opportunity would come up," Mr. Weidner said. "By combining the two franchises, we can increase the loan size Elverson can offer and keep their brand name."
Elverson National president Glenn E. Moyer said customers would gain access to products his bank could not afford to offer.
When the deal closes, "the Elverson franchise will immediately add electronic banking services, trust services, and commercial cash management products," said Mr. Moyer, who is to remain at National Penn as president of its Elverson National division and of the parent's operations in two counties.
Using different names to target specific markets is a familiar strategy for National Penn. It already operates three divisions, 1st Main Line Bank, Chestnut Hill National Bank, and National Asian Bank.